Republic, Parliamentary democracy with a Presidential form of government.

Type of economy::

High-income economy, OECD member, Emerging Financial Market

A model of an economy turned towards exports.

Economic overview

Ranking fifteenth in the list of the world's largest economic powers, South Korea has shown a spectacular growth over the past thirty years. However, due to its strong incorporation into international trade and finance, South Korea was one of the most affected countries in Asia by the international financial crisis. In 2013, growth only reached 2.7% due to the slowly recovering global demand, especially in China and the United States, as well as the weak Japanese Yen. Growth is expected to accelerate in 2014 (3.7%) thanks to a more favourable international situation.

Since 2012, South Korea has been suffering from the economic slowdown of its two main trading partners, China and the United States. President Park Geun-hye, who was elected in 2012, began his five-year term by announcing more economic democracy, in other words a rebalancing of the economy which is too dependent on the so-called chaebol (conglomerates) in favour of SMEs, and to promote creative economy based on services nad innovation. The government is pursuing a policy favourable to business and economic growth through a combination of tax incentives and a favourable monetary policy. Both the state and individual households are having to deal with the increasingly worrying issue of rising debt. The 2014 budget, which increased by 2% compared to 2013, focuses its spending on welfare, healthcare and employment, as well as the defense sector. The government does not expect the deficit to change (1.8% of the GDP) and a rising state debt which now represents 36.4% of the GDP. The Central Bank is trying to keep prices stable while also stimulating the economy. The county also needs to deal with the structural problems of an underdeveloped financial market, population aging, and the country's declining competitiveness as the Chinese economy has been moving more upmarket.

The revenue per capita in South Korea increased from USD 100 in 1963 to almost USD 20,000 today. Although unemployment rate has been decreasing, reaching its minimum since 2002, the number of irregular workers is very high and social inequalities are deepening.

Main industries

The primary sector in South Korea is weak, counting only with a negligible contribution to the country's GNP. Rice is the main agricultural crop. However, barley, wheat, corn, soybeans, and sorghum are also extensively cultivated. Likewise, livestock farming is done on a large scale. South Korea's mineral resources are limited to gold and silver. The country's main sectors of activity are textile, the steel industry, car manufacturing, shipbuilding and electronics. South Korea is the largest producer of semiconductors in the world. The manufacturing sector represents about 40% of the GNP, while the tertiary sector accounts for almost 60%.

Foreign trade overview

South Korea is the world's 15th trading nation, trade represents nearly 110% of the country's GDP (average figure for 2010-2012). It's the world's 7th largest exporter of goods and the 9th largest importer.

The trade balance of the country presents a high surplus and should remain so in the coming years. In 2013, the surplus reached a record level of more than 44 billion USD because of a rise in exports and a decline in imports. In 2014, the surplus should diminish due to the recovery of imports and a slower growth of exports. The main trade partners of the country are China, Japan, the European Union and the United States.

FDI

According to the UNCTAD 2013 World Investment Report, South Korea currently ranks 6th among the most attractive countries of South and East Asia for transnational companies. FDI flows into South Korea have been more or less constant in the recent years, around 10 billion USD, but they declined due to external shocks such as the unfavourable international economic context. In 2013, FDI flows declined by 9.4% compared to 2012.

South Korea's appeal in terms of foreign direct investment (FDI) is the result of the country's fast economic development and the specialization of its industry in new information and communication technologies. However, the lack of general transparency in regulations is a major concern to foreign investors.